Provides a measure of strength of the balance sheet. Just as someone earning £100,000 per year would be more comfortable with a £500,000 mortgage than someone on £20,000, a business with a small amount of debt as a proportion of earnings would be more comfortable than vice versa.
Net Debt/EBITDA
= (Debt-cash)/Earnings before interest, tax, depreciation and amortisation
Related articles
Samir Shah, Senior Research Analyst (collectives) gives an overview on what Goldilocks can teach us about fund size.
Samir Shah, Senior Research Analyst (collectives) gives an overview of investment companies.
Sir John Royden gives an overview of adjusted vs actual earnings.
If you like this article, follow us for more insights.
To receive more content like this subscribe today.